Why mitigation can be a minefield for employers

Mitigation — the duty of dismissed employees to look for new work — is surfacing more frequently as a headache for HR and employers, with recent case law highlighting just how high the bar is for organizations and how low it can be for workers.

In one recent case, an employee was awarded over $300,000 in lost wages, largely due to the employer’s failure to provide evidence of his lack of mitigation. 

In another, an employee who rejected an offer of employment from an acquiring company did not fail to mitigate his damages, according to the court, and was awarded 12 months of notice at common law.

“Employees have a very low bar threshold to meet when they're proving that they have mitigated or tried to mitigate properly,” says Carolyn Denault, an associate at McCarthy Tétrault.

By contrast, “employers are expected to come to trial with a full record of jobs that the employee could have applied for and full evidence as to why they didn't mitigate properly.”

Defining ‘comparable employment’

If an employee is entitled to reasonable notice under the common law, they also have a duty to mitigate their damages, which means they must take reasonable steps to find comparable employment. If not, the entitlement may be reduced.

But one of the big reasons why mitigation is a challenging area is the basic principle in employment law recognizing the imbalance of power between employers and employees, says Jawdat Saleh associate at ccpartners.

For that reason, the onus is on the employer to prove a failure to mitigate — not the employee.

“It's your burden as the employer to prove that there were comparable positions out there,” says Saleh, and, generally, that means jobs that are comparable in status, hours and remuneration.

But that can still be up to interpretation, he says, citing one case where the employer argued the ex-employee was applying for jobs above her — but the individual argued that she applied for positions that she was qualified for — and the court of appeal agreed with the employee.

Denault says there is conflicting case law on what comparable employment constitutes, but often it comes down to the question of compensation, which includes items such as restricted stock units and pensions.

Mitigation: High bar for employers

Another reason mitigation is a challenging area is because of a “lack of accountability” for employees to have to mitigate to the full extent, says Denault, calling it an “amplified” trend.

“Employers have the burden of keeping accurate and up-to-date logs of what they actually could apply for… and it’s tough, the case law is not very employer-friendly in that regard.”

That's the hurdle that employers are facing these days, she says, as employees can provide some sort of Excel sheet listing the jobs that they’ve applied for “and it doesn't go much farther than that.”

The issue most often arises in wrongful dismissal cases, but it is not confined to that context, she says.

“Anytime an employee's employment ends, typically… the employer will be wanting a record of their mitigation efforts and courts will examine mitigation efforts.”
Proving failure to mitigate

The “gold standard” for employers trying to make a mitigation case is having evidence that an employee turned down a comparable position, says Saleh.

“That’s very hard to find. You usually don't have that unless you provided it to the employee and the employee didn't apply or turned it down.”

Otherwise, it’s about looking at how many jobs the person applied for during a certain time frame, and whether they applied for comparable positions.

Also, he says, it’s about asking: “How long did they wait to start searching? Did they use the right tools to search? So, are they using job banks or are they using social media or just word of mouth? Are their applications too narrow in terms of the field?... Generally speaking, was this person making a reasonable effort?”

Much of that will depend on the specific circumstances of the individual, says Saleh: “Obviously, the higher the specialization, the harder it is to find comparable positions.”

And again, it is always contextual. He cites one case where an employee waited two months to start applying for jobs — and luckily for the employer, the court agreed that was too long a delay.

Extenuating circumstances such as the COVID pandemic, employee’s location or certain specialized roles will also be factors considered by the courts in assessing mitigation efforts, says Denault.

“They are typically entitled to a longer notice period just because it is harder to find jobs,” she says.

Successor employment

Another important consideration for mitigation is successor employment, where a new employer takes over a business, or part of it, from a previous employer and the employees decide to work for the new entity.

Basically, the person’s job is terminated from the initial employer and then there’s an offer for employment with the new employer.

“It needs to be comparable, like it needs to be virtually the same,” says Saleh. “There are some employers who try to take the opportunity to try and change things about the job and that can hurt you.”

But timing is important, he says.

“You communicate [the offer] to them and you leave it open for acceptance all the way until after they’re terminated because their duty to mitigate doesn’t technically trigger until after they’ve lost their job.”

It’s also wise to make it “extremely clear” in the job offer that if the person doesn’t accept, the employer will take the position that they failed to mitigate, says Saleh.

Denault agrees that the date of new employment would become the notice period, “so from the date of termination to the time that they mitigated, if they fully mitigated… the damages would crystallize on that date of new employment.”

And if they only partially mitigate it, then it’s a matter of looking at the delta between their compensation, if their new compensation is lower than their original role that they were terminated from, she says.

“That's how we would view that successor-employer relationship in the context of mitigation and wrongful dismissal claims.”

Severance obligations and mitigation

Another important factor for employers concerns severance. Generally, from a mitigation perspective, when you’re ending someone’s employment and they’re owed a sizeable amount, it’s best to do that through a salary continuance as opposed to a big chunk of money, says Saleh.

And in that same salary continuance language, HR should include a clawback clause, he says, meaning if the person finds work within, say, six months, the employer will stop the payments or reduce the payments.

“A lot of employers are like, ‘No, we're not going to offer that because we don't want you to be making money while we're paying you because it's going to look bad,’ especially public employers, but it still reduces the amount of money that's coming out of your pocket so I usually recommend it.”

Another tip: Define comparable employment in the offer, especially for executive-level positions. That could mean, for example, saying another position with a salary of at least 70% of what they were making before, he says.

Denault also agrees that a salary continuance model with a mitigation clawback is “extremely useful” in the climate of case law today: “It really puts the onus on the employee to mitigate because they understand that there is a limit to what they can get from the employer.”

She adds that this approach is “extremely helpful” in leveraging a wrongful dismissal claim.

Being proactive with outplacement

To further their cause, Saleh recommends that employers provide a reference letter, or at least a proof of employment letter, to the departing employee right from the get-go.

“There’s usually so much bad blood between the employer and the employee that they don’t want to do that… but that’s going to help them find a job. And then that’s going to mitigate your risk.”

However, there has been case law showing that if an employer’s reference letter is brief, with only the bare facts, that can be seen as more harmful to employees, says Denault.

“Future employers can look at those and read it a bit negatively into thinking ‘Why didn’t they write anything positive?’”

As a result, she recommends employers provide a positive letter of reference if appropriate or at least a more personal one.

“It doesn't need to be a glowing letter of reference if it doesn't make sense in the circumstances, but something that has a human element to it.”

In a similar vein, providing job coaching or outplacement services of some kind is also advisable, says Saleh.

“You have these employers who are terminating these VPs who’ve been working for them for 25 years, making $250,000, $300,00 a year, and now their payouts are looking at half-a-million dollars, if not more — go spend that $2,500 or $5,000 to get them job coaching,” he says.

“It’s money well spent — the chances of them finding a job go up exponentially and it reduces the risk.”

Helping with the job search

Also a good idea? Get involved with the job search yourself by sending the ex-employee job possibilities or having an outside company do this, says Saleh.

“Depending on how much your severance costs are going to be, how much your risk is, it’s so worth it from a dollar perspective,” he says, citing case law that’s shown employees who fail to apply for these job possibilities are found to fail to mitigate.

Denault agrees, saying she’s a “big proponent” of sending out mitigation letters, particularly in cases where an employee is a good candidate.

“It’s not as much of a case when you have an employee who was maybe on a leave of absence or is on some sort of protected leave,” she says, such as parental leave.

These mitigation letters can be sent weekly or monthly, listing jobs that the person could apply for in the vicinity of where they live, that are comparable to what they were doing and pay roughly the same, says Denault.

“That greatly helps with, first of all, proving our own internal log of ‘We’ve done our due diligence on what they should be applying for’ and, secondly, helping the employee get a job and hopefully capping our damages when they actually mitigate.”